Galliford (UK) Ltd v Markel Captial Ltd

Decision against the engineer company obtained by the contractor not enforceable against the engineer company's insurer under the Third Parties (Rights Against Insurers) Act 1930 where the engineer company became insolvent after the decision was made

The contractor referred a dispute under the contract of engagement with the engineer company to adjudication. The adjudicator made an award in his decision for the payment of a specified sum to the contractor. The engineer company became insolvent after the decision was made. The contractor issued court enforcement proceedings against the engineer’s insurer and applied for summary judgement under section 1 of the Third Parties (Rights Against Insurers) Act 1930.

Section 1 of the Act provides that where a company insured against liabilities to third parties becomes insolvent, if such liability was incurred by the company, its rights against the insurer in respect of the liability were transferred to and vested in the third party to whom the liability was incurred. The insurer contended that in order to establish a loss within the meaning of the policy, the contractor had first to enforce the award and that until that was done, the engineer’s liability had not been established for the purposes of the Act.

Judge Behrens agreed with the insurer’s contention. The cover under the policy was to include loss “consequential upon an adjudicator’s award” and was not an indemnity as to the adjudication award itself. “Loss” was defined under the policy as meaning the engineer’s legal liability for damages awarded against it. Until the engineer’s legal liability for damages had been established by court or arbitration proceedings or by agreement, there could be no “loss” within the meaning of the policy (and the engineer could therefore not properly have sued the insurer under the policy).

It was a defence to an application to enforce summarily an award that the adjudicator had exceeded his jurisdiction. The engineer contested the adjudicator’s jurisdiction during the course of the adjudication and it should be open to its insurer to repeat that challenge in court proceedings brought by the contractor to enforce the adjudicator’s award.

Advice Note

If a claimant obtains a decision in its favour against an insured defendant company that becomes insolvent after the decision is made, the claimant will only be able successfully enforce that decision against the insurer under the Third Parties (Rights Against Insurers) Act 1930 if the insurance policy expressly covers the decision as an “insured event.”